As a turnaround and restructuring
professional ad campaigns rarely interest me, but I find the
evolution of Zappos to be fascinating. A company that was
once focused, as CEO Tony Hsieh put it, on the three C’s of
“clothing, customer service, and company culture” seems to be
drifting.

Perhaps that should not be a surprise. Tony Hsieh spoke openly about the need for his
company to grow in order for a broader movement to spread
happiness to occur. Competition on such bases in the early stages
might be easy, as the market embraces novelty and competitors
struggle to find a response to an asymmetric advantage based in
large part on wildly superior customer service.

But there are costs to the old
Zappos approach, and the new ad campaign might be a strong signal
that Amazon, which acquired the company in
2009 for $790 million in cash and $40 million in stock, has come
to appreciate that reality. In 2008 Zappos had net sales of $635
million and operating income of $10.8 million, for an operating
margin of 1.7%. A private company chasing growth can afford
those kind of anemic profitability numbers for awhile (though
reading Tony Hsieh’s recap of his decision to sell the company, it
seems that a liquidity squeeze was going to force some drastic
changes if a sale did not go through).

Perhaps this is just a corporate
strategy version of revision to the mean. Zappos was fun and
quirky and fought well (and differently) when it was smaller, but
it was only marginally profitable and now has been acquired by a
public company that actually wants a respectable level of
profitability. Maybe competition on the level of nude models on
scooters is easier. Sigh.